Bank accelerates loan loss to pave way for better 2012
AIB will accelerate loan loss provisions in the second half of the year as the nationalised bank prepares to woo private investors in early 2012.
The news came as AIB unveiled underlying losses of €2.6bn for the first half of the year, including provisions of €2.9bn for loans gone bad.
Executive chairman David Hodgkinson confirmed the bank would take another hefty loan loss hit in the second half of the year, following guidance from the Central Bank.
Central Bank deputy governor Matthew Elderfield yesterday confirmed that his office had directed banks to "ensure that any potential impairment" was recognised "as fully and as early as possible".
The move, a departure from accounting standards as traditionally applied by Irish banks, will trigger billions of extra loan losses in the second half of this year, but clear the way for better results thereafter.
Mr Hodgkinson said AIB had already had "positive" discussion with potential investors, but that would-be shareholders wanted to wait to see the full extent of loan losses later this year before they stumped up cash.
AIB's latest half-year figures also showed a €5bn fall in like-for-like deposits; Mr Hodgkinson yesterday said the sovereign crisis had "distracted" depositors, adding that levels had "stabilised" in recent months.
Despite that, the bank was able to exit the Central Bank of Ireland's "emergency liquidity assistance" programme in April after the Treasury Management Agency (NTMA) gave the bank €11bn of special deposits.
Most of that €11bn will be used for the bank's July 31 recapitalisation, and AIB bosses yesterday said they did "not expect" to have to return to the Central Bank for more emergency assistance.
The funding profile is also helped by AIB's "deleveraging" project, which saw the bank reduce its 'non core' portfolio by a target-beating €8.3bn in the first half of the year, largely by selling foreign assets and taking foreign repayments.
Yesterday's figures also show AIB made an operating loss of €100m for the first half of the year, significantly better than the €200m loss a year earlier, as staff costs fell €38m.
Mr Hodgkinson said there was "still a hope" AIB could return to operating profit in 2012, but stressed that the outcome depended on the economy.
Tough competition for deposits and rising ECB interest rates mean AIB is facing continued high funding costs. The black spot for loan losses continues to be property, with €294m of fresh impairments charged for residential mortgages as the pace of arrears "accelerated" in 2011 after easing in late 2010.
Some 7.8pc of AIB's €18.5bn residential mortgage book is in arrears for more than 90 days, up from 4.8pc in December.